Friday, January 24, 2014

Soylent Green and economics of the labor force

Pennsylvania's official unemployment rate dropped from 7.3% in November to 6.9% in December 2013. A 4/10th of a percent drop that the state notices is the biggest one month decline since 1983. If ever there was a false analogy, consider that the 1983 nominal drop was barely a reversion from the economic miasma of the time. You have to go back a lot farther than 1983 to find a more growth driven drop in the state's unemployment rate.

Now many will say it is all because workers are dropping out of the labor force due to discouragement. Before you fall into that trap read any of the following:

I bet that if you decompiled the demographics of Pennsylvania, the impact of aging in Pennsylvania's labor force is greater than what is true for the nation on average.

I could go on, and it is another whole story what is going on with local labor force participation rates, but Tuesday's data dump of Pittsburgh MSA jobs data is going to be interesting. No way to get big statewide changes without a big Pittsburgh component.

Lest anyone get confused and if forced to parse, the numbers quote sure seem to overinterpret the trends in labor force participation rates. The more common analysis is showing how the shift in the age distribution is pushing the aggregate LFP rate down. So for sure as that article notes, LFP rates for older groups are going up... but the population as a whole is made up more and more of those older groups. There is no dispute that LFP rates for older Americans drop as you get older. The math here is not that deep, but certainly convoluted if you just look at trends in the rates.

Put another way, we are getting older (or at least the workforce is) faster than LFP rates are going up. At the younger age ranges realize also we continually trend toward longer periods in school so you can't just say lower youth LFP is made up of folks unable to get a job.